A longitudinal analysis of tax planning schemes of firms in East Africa

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Taxes play a significant role in the social and economic development of counties. On the other hand, taxes represent a significant cost to firms; hence they devise legal ways to reduce their taxes through tax planning. In East Africa, the statutory tax rate of firms averages 30%, which is considered a major burden to the firms. As a result, this study aims to longitudinally examine the tax planning practices of listed firms in East Africa countries (EACs). The study used twelve-year annual reports of ninety-one firms from EACs. Both cash effective tax rate (CEFR) and accounting effective tax rate were employed as tax planning measures. Descriptive statistics together with Wilcoxon signed-ranked test were used to analyze the results. The study demonstrates the existence of corporate tax planning by the listed firms in EACs. The average CETR of the firms was 17% as opposed to the statutory tax rate of 30%, demonstrating that the firms actively engage in tax planning activities. The evidence further demonstrated a gradual decrease in the tax planning activities of the firms over the past twelve years. The study further found out that the rates of decline in the firms’ tax planning were statistically insignificant. Despite the decrease in the firms’ tax planning, the tax authorities in EACs should enforce tax laws to eliminate the tax planning problem.

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    • Figure 1. Tax planning trend (2008–2019)
    • Table 1. Wilcoxon signed-ranked test results
    • Conceptualization
      Alfred James Kimea
    • Data curation
      Alfred James Kimea
    • Formal Analysis
      Alfred James Kimea, Msizi Mkhize
    • Methodology
      Alfred James Kimea, Msizi Mkhize
    • Resources
      Alfred James Kimea, Msizi Mkhize
    • Software
      Alfred James Kimea
    • Validation
      Alfred James Kimea
    • Writing – original draft
      Alfred James Kimea, Msizi Mkhize
    • Writing – review & editing
      Alfred James Kimea, Msizi Mkhize